Planning, Operating, and Funding the Business - Get the Right Advice

Business challenges you every day to plan, operate, and fund the business.  It takes good people, systems, and processes. 

This month the newsletter covers a broad range of topics that impact of:

• different funding (grants) on your business
• strategic plans and budgets
• business concepts
• communication
• much more!

Strategic Plans and Budgets - Performance Tools return to top

Understanding how to get the most out of your strategic plan is important.  A robust strategic planning process includes translating the strategic and operational objectives into pro forma financial results.  These financial results, like the strategic plan, typically span a 3 to 5 year period.  Each year of the strategic plan can be translated into financial statements for the period.  Years 1 through 3 of the strategic plan are often detailed by month and as the plan extends into years 4 and 5, the detail may be at the quarterly or annual basis depending upon the organization.

By developing a robust financial forecast, the organization can validate and analyze the impact of assumptions and interpretations of information on the expected financial performance.  The financial data compiled is a forecast of what is expected to occur in the organization based upon the current knowledge of internal and external influences on the company.  The first year of the strategic plan and the accompanying financial projections can usually be developed with a high degree of accuracy.  (Accuracy is constrained by time, availability of resources and information, and the level of sophistication of the tools and experience of the organization’s team.) Subsequent forecast years become less precise as the degree of uncertainty increases.

Once the full strategic plan (with accompanying financial forecasts) has been developed, the organization moves toward the implementation.  This implementation phase converts the first year strategic plan and related financial forecasts into operational plans and budgets.  The process may be as simple as establishing performance measures and assigning responsibility/accountability to various levels of the organization, or it may, depending upon the time lag between the creation of the plan and implementation, include a revision or refinement of the information and plans to update the plan for changes in the organization, its environment or other factors including economic conditions.

Regardless of whether the first year financials are accepted as is or revised, they become “the budget” for the current year.  These numbers are what the organization compares itself to in order to determine if things are tracking as expected, to control expenditures, and to evaluate individual and overall performance.

For some organizations, the process stops at comparing actual performance to the budget.  For other organizations, the process includes periodic forecasting that incorporates the new information from actual performance into new performance targets and expectations.

When organizations choose to engage in periodic forecasts, they incorporate actual performance as it becomes available. Information is “plugged into” financial reports to replace the budget amounts previously used.  This enables the organization to understand the impact of achieving, missing, or out-performing expectations.  Both good and bad news results impact the future budget periods and the type of decisions the business has to make.

The organization can take the forecast process a step further by examining the underlying factors that led (?) to actual performance.  Those factors are then extrapolated into their impact on future periods.  Analyzing the potential impact on the remaining periods in the year, the business is able to adapt and change behaviors to correct missteps, enhance opportunities, or restructure activities to address significant business challenges or opportunities.

Budgets and forecasts are complementary tools that enable organizations to understand what was expected to happen versus what really happened.  Forecasts are looks into the future to project existing structures, operations, and systems onto activities that will continue from today and those that will be added – incorporating new information gained from actual results.

Budgets are the spending plans, a result of strategic planning processes.  The organization can utilize budgets as a point of orientation, comparison, and control.  Budgets can be a means of evaluating new opportunities and information against the expected and planned activities and the allocation of capital and other resources.  Budgets are part of the tool set used to evaluate performance of the organization, products, business units, groups, and individuals.

Financial results are usually maximized through a dynamic planning and operating process.  The plan is a roadmap.  When detours are required due to unexpected barriers or new avenues being identified, they are evaluated against planned activities and enable the organization to reallocate resources, compensate for new information, and evaluate trade-offs between continuing as planned (if that is even possible) or revising the plan to incorporate changes and adaptation.

If your organization does not have a strategic plan or budget process, consider the benefits that can be derived from the process and the product, the plan and budget:

• Clarity of definition for organizational objective and direction
• Identification of key processes
• Clarity on priorities
• Allocation of resources
• Alignment of organizational resources with objectives
• Identification of system gaps – process, people, and products
• Specification of decision-making guidelines
• Projection of profitability, as well as sources and uses of cash and
• Planned cash position

Strategic planning and budgeting require an investment required of resources – time, systems, and dollars.  While some insights are gained through the process, integrating the strategic plan and budge into the core of your operations provides significantly more return to the organization.

If the strategic plan and budgets are robust, but only a “one-time” or “point-in-time” event – an annual exercise, not tied to actual activities and operations, you will not be able to capture the full spectrum of returns.  “Annual events” are often viewed as an exercise to be gotten through, without meaning if it isn’t connected into performance measurement and rewards.  Also, a static strategic plan and budget are limited as a comparator, if analyses of results don’t have a chance of impacting what the business and its resources do.

Grants – Don’t Take the Process for Granted return to top

For technology and bio-tech companies, the availability of government grant programs through various government agencies – National Institutes of Health, National Science Foundation, Depart of Defense, and others – provides an opportunity to obtain funds that neither dilutes founder and early-stage investor ownership, nor requires that they be repaid as loans do. However, grant funding isn’t without cost or requirements. It is important to understand the implications of the grants on all aspects of the business, particularly accounting, project management, human resources, and intellectual property ownership.

For companies deciding whether or not to pursue grant opportunities, it is important to understand both the proposal and compliance processes. The proposal process involves identification of funding agencies that will be interested in your technology. This step includes reviewing the existing requests for proposals, timing for submission of proposals, and understanding what needs to be included in your proposal.

NOTE: If you are in the process of developing a new technology in your lab at a university or on your own in your garage or basement, be aware that you do not have to have an established company when you begin the proposal process or even at the time of submission. You will be expected to form a company within a specified period of time should you be notified of a grant award.

The elements of your grant proposal combine to become a "sales" tool for your proposal and concept. The content of these elements explain the WHY this should be done, WHO is affected, HOW you plan to do it, WHO will be doing the work, and HOW MUCH it is going to cost.

Example Table of Contents - Phase I Grant Proposal:

Each of these elements requires that you carefully develop the "story" and the perspective that communicates that your idea is

• New,
• Innovative, and
• Not currently in the public domain

It is also important to convey the potential for COMMERCIAL application and development. These agencies make grants available to develop solutions to unsolved problems that may lead to marketable products.

Grants are not for the sake of research. They fund feasibility and development of concepts into solutions for commercial applications. They are a means for businesses to obtain a portion of the funding needed to assess viability and commercialization potential. Grants are not intended to be the sole source of funding for any technology or for a business. Businesses and researchers need to be aware that grants are not intended to cover 100% of the feasibility, development, or commercialization cost of any technology or product. Instead, they are intended as a mechanism for defraying some of the costs during early-stage innovation.

Another point that businesses and researchers need to be aware of this: grants do not have to repaid, IF the organization receiving the grant complies with regulations, reporting, and accounting practices related to receipt of government funds. Organizations receiving grant funding are expected to comply with regulations related to

• Recordkeeping
  • Projects
  • Timekeeping
  • Funding
• Accounting
  • Cost
  • Controls
  • Projects
  • Commercialization
• Human Resources
• Intellectual Property Ownership
  • Funding sources
  • Licensing
  • Other issues

The items above do not fully encompass all of the business, process, and systems requirements that accompany government grant compliance requirements. They do, however, provide a starting point for discussion within your business on possible implications on how you do business and the cost of compliance. Having an awareness of potential issues and changes to your business model enables you to evaluate objectively the benefits versus the costs of using grant funds.

The impact on your business is, in part, a function of the number, type, size, and source of the grants. Each business should take the time to understand the specific issues that relate to its particular situation and parameters. The areas to focus most intensely on are intellectual property ownership and project controls – including accounting and recordkeeping processes. With upfront planning and analysis, businesses can avoid many pitfalls and reduce the overall investment in systems and processes to support grant projects, proposals, and accounting.

Dynamic Alliances Communication Workshop - Promotional Event return to top

Last month at a meeting of eWomen Network in RTP, I met Lynn Russell, President of Dynamic Alliances. As Lynn talked about the workshops and services that her company provided, it became apparent that many of the meeting attendees were interested in a communication workshop - for themselves and for others.  Lynn kindly offered to put together a "promotional" mini-workshop.   The workshop is intended provide participants with some insights into communication style - across generations.  Seating is limited to 25 people and the cost is $20 (plus tax) to cover materials - this time only!

What's My Communication Style?

In staff meetings, planning sessions, one-to-one conversations and even across the room, we think we have made our thoughts clear to others, sometimes to discover that their interpretation of our message was very different from our intent.  Interpersonal communication is complex and compounded by differences in thought process, word selection, body language, and other non-verbal signals.

In this introductory session, we will uncover preferred styles of verbal and nonverbal communication. By responding to a simple 24-item inventory, participants will learn their preference for one of four communication styles, recognize the various facets of communication, and learn how to use their own style to enhance communication.

Learning Outcomes

·       Pinpoint one of four style preferences

·       Discover how style affects behavior

·       Recognize the strengths and weaknesses of each style

·       Learn how to interact with different styles

Wednesday, August 4, 2004
1 to 4 pm
"Registration" 12:30
Windsong Retreat and Learning Center
Pittsboro, NC
next to Jordan Lake off of 64
For directions go to http://www.windsongretreat.org/directions.htm
Sign up at https://securessl01.websitecomplete.com/lrussell/shop/showDept.asp.

Backyard and Over-the-Fence "Consultants" and "Experts" return to top

Does this sound familiar? "Well, I was talking with my neighbor about <insert your question or issue here>, and he said that when his dad was in business they always did <insert that solution here>." It may sound and seem logical that the voice of experience can give you good advice on your business, but the reality is it may be a costly mistake to act on that advice.  What the person is telling you may be true, if you were in the exact same situation, but it is highly unlikely that the situations are identical.

Businesses face different issues that may appear to be the same or similar.  It is probably safe to say that almost everyone at one time or another has accepted as "gospel" some information that has been passed along from friends, family, neighbors, and/or other business owners.  Some of the information may be highly accurate, but it shouldn't be taken at face value.  Businesses and situations differ along some pretty significant dimensions:

• Industry rules and regulations
• Number of employees (different regulations may apply at different levels)
• Number of states operating in (interstate commerce)
• Federal, state and local employment regulations
• Type of business or activities being undertaken
• Company specific agreements - grants, debt and equity
• Company history (past violations)
• Stage of business
• Customers
• Suppliers

The context of the decision and situation make a substantial difference in dealing with the specific issues of any business.

One area where "neighborhood' knowledge is often applied is human resources and payroll activities.  The preparation of payroll is "simply" equations - this hourly rate (or salary) times this tax rate, etc.  The calculation may be correct, but how do you KNOW you are using the right numbers and rates?  How do you know workers are properly classified as independent contractors or employees? Are employees properly classified as exempt or non-exempt, part-time and full-time?  Do you know what a garnishment is? Do you understand all of the garnishment rules and restrictions?  What about the employee privacy and what is being communicated on the check stub?  What's there that shouldn't be?  What is in the payroll file that belongs in a separate employment file and vice versa?

One of the biggest challenges in dealing with companies that have received "backyard advice" is that the full ramifications of "what they don't know, they don't know" aren't apparent.  It may not be understood that things you don't know can result in significant penalties and possibly criminal charges (especially if determined to be "willful".  Simply using a software package or having a CPA review doesn't mean that you are in compliance with all rules and regulations.

What you ask the CPA to review may be 100% correct.  What the CPA reviews may be the calculations or that the forms are properly completed, etc.  The real question is this: is the entire process in compliance - are all the i's dotted and t's crossed? Without being asked directly and without having payroll/human resource expertise, your CPA or bookkeeper may not be looking at all aspects of the compliance required of your business.  It isn't that the CPA or bookkeeper isn't competent - hey are answering the specific question or questions asked.  They aren't  answering questions you haven't asked or aren't in their field of expertise.

Finance and human resource activities are some of the most challenging for businesses of all sizes and industries because the rules and regulations are constantly evolving in response to changes in technology, economics, politics, and other events (Enron, Imclone, etc.).  Keeping up-to-date on the changes in these fields is challenging for the specialist.  It is even more challenging for business owners or managers who are absorbed in running a business, not working to keep up-to-date on every rule and regulations that is in effect (old or new).

No one has all the answers to the details of every functional area in the business.  To say blithely that everything is "covered" without having had a comprehensive review or audit of potentially at-risk processes and activities puts the enterprise at risk.  All it takes is one dissatisfied employee, contractor, or other "stakeholder" to put your business under a microscope.  When evaluating "backyard expert" advice, consider these questions:

• Are they an area expert (lawyer, doctor, accountant, etc.)?
• Are they experienced and an expert in the area you are discussing?
• Have you discussed the details of the business or is this a general discussion?
• When did the situation being used as an example take place - yesterday or 20 years ago?
• Are the businesses or situations being compared substantially the same or can you tell?
• What type of activities are you discussing?
• What are the implications to you and your business if the advice is "off'?
• Are you paying for the advice?
• Is the person talking from direct experience or about someone else's experience?  Things often get lost in translation.
• What discussions are you planning to have or have had with your CPA, lawyer, and other advisors related to the EXACT details of the issue or situation?
• Are you planning to act on the information being shared without further investigation or discussion?

Giving and getting advice on any business, activity or situation requires taking a complete look at all the factors, influences and decision criteria.  It also requires an understanding of the impact on the business if you are acting on information that isn't accurate or complete.  What happens if the calculations are correct, but the inputs and variables aren't?  What happens if you fail to comply with an important reporting requirement?  What happens if you violate someone's right to privacy?

Business is business and it requires understanding who is giving the advice, on what situation and parameters, and what you are going to do with the advice received.  Continuing the payroll example, a payroll preparer (clerk) and managers throughout the organization (finance, human resources, CEO, and others) can be held personally liable for payroll errors and non-compliance.  Would you bet the business on "backyard experts"?

Right Role, Right Person, Right Deliverables return to top

One aspect of business that often goes awry involves identifying resources and the cost required to acquire or use those resources.  While equipment and other physical assets may be a significant part of your start-up capital, the human assets - employees, contractors, and service providers - will be on-going expenses and can result in significant "opportunity cost” to your operations.

The expense categorization is easiest to see.  You will be spending money on wages, salaries, taxes, and possibly benefits.  The "opportunity cost" is often less easy to identify.

The opportunity cost of the human side of the business includes the ability of your team to perform all the needed activities of the business effectively and efficiently. It involves having the right skills sets, abilities, expertise, and experience to deliver the product and/or service to customers in a manner that builds both the business and its profits.

The "cost" then is what is lost when the roles are not adequately identified, defined, or filled the way the business needs to operate.  Instead, the business makes role and hiring decisions based upon who is well-liked, personable, known, and/or available.

Businesses of all sizes, ages, and industries commonly mistake having "bodies" in jobs as all that it takes.  Often there is a failure to recognize that having the right role defined is the first step in getting the results and return that the business needs.

Once a role is defined, the next step in the process is to determine the characteristics of the person who "fits" the role.  These characteristics include education, experience, skills, abilities, expertise, and qualifications/credentials.  Understanding the role in terms of the attributes it demands is critical to recruiting, selecting, and motivating performance of the person performing the tasks.

To maximize the performance of individuals, the deliverables from the person in the role need to be defined and clearly communicated.  The expectations of performance need to be defined in terms that are measurable, quantifiable, achievable, and consistent with the organizations objectives.  Establishing performance criteria that require a tam member to "stretch" to achieve is customary.  Setting performance measures that align the business activities with overall strategic and financial objectives is logical.  By making those goals and deliverables objective, quantifiable, and measurable everyone knows where performance falls.

How do you determine what roles need to be performed in your business?  How do you define what skills, abilities, expertise, and experience your team needs?  Where do you find those people?  What relationship do you need with them?

First, not every role will be filled by an employee in your business.  This is especially true in the initial stages of the business.  Depending upon your business, you may be the only employee and may want to do it all yourself.  Reality, however, is you will not have experience in every area that you need to address.  You will be looking for contractors, advisors, service providers, and consultants to "fill out" your initial team.

The advantages of utilizing outside talent are many.  They include:
• Buying only the amount of resource you need
• Selecting only the services you need
• Acquiring expertise through working with the provider
• Having the flexibility to change to someone else, if the relationship doesn't fit

There are challenges in dealing with external resources.  They include:
• Identifying reputable providers
• Understanding limitations on relationships
• Understanding the qualifications of various experts
• Managing the expenditures
• Timing the services to meet the business needs
• Having resources to pay
• Prioritizing the needs and deliverables

In some ways the benefits and challenge of utilizing external resources are paralleled by those of recruiting, selecting, and hiring employees.  There are differences. 

When dealing with employees or potential employees, there are special concerns and practices that arise out of regulatory guidelines.  While many of those guidelines don't come into play when the first employee joins your company (usually that is you!), employment practices are an increasing area of interest for enforcement agencies, because so many businesses "get it wrong" - even experienced, well-established businesses.

Why is it so challenging to handle this critical area of business?  In part, it is an imprecise activity that must follow some fairly stringent requirements.  Establishing objective criteria and applying those criteria to every person seeking a specific position is challenging.  It is human nature to lean toward the person that is most "likable" or most like what we are use to or comfortable with - even when that person is not necessarily the best qualified.

Businesses need to be cognizant that these "preferences" can be interpreted as bias, especially if they lead to a pattern of employment behaviors - say excluding minorities or other protected classes from your staff.

Make the time to properly build your team.  It is a sound investment.

Service Providers and Intellectual Property return to top

Sometimes as service providers, it is difficult to draw the line between what is intellectual property and what is "community" property.  Service providers, including lawyers, web designers, and other consultants/advisors often have as part of their unique business models and processes "tool kits" that they use to provide services and develop "tangibles" for the client.

It is important for service providers that differentiate themselves through proprietary processes and "tool kits" to protect those assets.  When financial models, decision tools, training materials, and templates are developed for your company and then used as part of the process with the client or shared with the client - either for training purposes, as an example, or for the sole use of the client company - that those items be protected.  Protection can take the form of copyrights or trademarks/servicemarks (registered or unregistered).

Not charging your clients for the use of your proprietary tools is okay, if that is your choice.  It does need to be a conscious choice, however, not a default position.  Unfortunately, in the age of electronic files and copy machines it is easy to lose control of your intellectual property.  To minimize the risk, consider doing some of the following:

• State clearly in contracts, engagement letters, and other documents how intellectual property ownership is handled.
• Spell out in work-for-hire agreements when ownership rights transfer, if they do.
• Indicate on all work products who retains ownership with copyright and other intellectual property notices.
• State clearly what happens if a client fails to pay the full bill for development of content, tools, and other work products.
• Institute policies and controls over the distribution and "sharing" of intellectual property with clients, by clients, and third parties that have access to your proprietary information as a result of interaction with your clients.
• State expressly what usage is allowed and what is prohibited.

Why be concerned?  As a service provider should your "tool kit" becomes readily available to competitors, prospects, and, well, anyone else, you are now competing against others who can use your tools and insights.  Copyrights, in particular, won't prevent someone from looking at what you have developed and creating a similar product or tool.  It will open them to penalties only for specifically duplicating the EXACT thing you have created or for using your tool.

As clients and peers of service providers, individuals and companies it is important act with integrity in viewing, using, and obtaining the intellectual property of others.  Service providers rely upon their "products" to differentiate themselves from competitors and to provide revenue to their businesses.  Misappropriation of documents, procedures, financial models, websites, "look and feel" items, and all of the other work products without compensation is a form of theft.  Certain activities may be deemed "fair use" - it may infringe but is excused because it is "transformative" - research, journalism, and the like.  "Fair Use" isn't distributing a spreadsheet model or other proprietary document or tool to other companies, colleagues, or individuals for their use.

It is easy to fall into the practice of "sharing' great tools, articles, or other items.  Be cautious and cognizant of intellectual property rights when you distribute materials, tools, spreadsheets, or any thing else that may be someone else's means of making a living, earning royalties or other revenues.  Intellectual property use truly is a Golden Rule area - "do unto others, as you would have done unto you".

NC Journal for Women return to top

Beginning in August, Lea Strickland, President of FOCUS Resources will be writing a monthly column for the North Carolina Journal for Women in the "@your own business".  If you haven't checked out the e-magazine yet, you can find it at www.ncjournalforwomen.com.

Copyright © 2004 F.O.C.U.S. Resource, Inc.